Egypt’s hydrocarbons wealth is largely concentrated in offshore oil and gas fields in the Gulf of Suez, the Nile Delta and the Mediterranean Sea.

Cairo raised its proven natural gas reserves figure to 77.2 trillion cubic feet (tcf) in June 2009, an increase of 1.2 tcf on the figure from a year earlier. And the country’s oil reserves rose by 220 million barrels to 4.4 billion barrels for the 2008-09 period, according to a report issued by Egypt’s Petroleum Ministry.

Yet despite these reserves, development of the country’s energy sector, particularly gas, has been mixed. The state-run Egyptian Gas Holding Company (Egas) was only able to award four of the seven exploration blocks on offer in its licensing round in May 2009.

The UK’s BG Group took block one in Nile Delta’s North Gamasa field, and BP, also of the UK, won block two in the North Tineh field, 60 kilometres north of Port Said in the Nile Delta.

BP, this time in consortium with the UK/Dutch Shell Group and Malaysia’s Petronas, won block three in the North Damietta field, which lies adjacent to block two. Each holds a one-third interest, with BP operating the field.

France’s Total and Italian utility Enel won block four in the East el-Burullus field, 70km from the coast in the Nile Delta. Total, which will operate the block, has a 90 per cent stake in the joint venture, with Enel holding the remaining 10 per cent.

Three deep-water blocks, covering the North el-Mamura, North el-Dabaa and Sidi Barrani fields, offshore fields in the Nile Delta and the Mediterranean Sea could cost as much as $160m to develop. This makes agreeing the price at which gas is sold even more critical.

After six months of talks, oil majors were offered one-off terms of $4-$4.50 a million British thermal units (BTUs), rather than the normal $2.65 a million BTUs, as compensation for the high cost of drilling in the deep water blocks in early 2009.

However, uncertainty still surrounds the long-term pricing picture. “As long as there’s a discrepancy between the state-decided domestic sale price paid to producers and the international market price, this paradox will be hard to navigate, given the country’s tight gas supply situation,” says Samuel Ciszuk, Middle East energy analyst with IHS Global Insight.

Sayed Matbouly, assistant vice-chairman for exploration at Egas, says a new offshore gas round is unlikely to be held in the short term, as so much exploration is already under way.

“We are always looking at the way we can group new acreage together for companies to bid for, but I do not see anything coming up in the next year or so,” says Matbouly. “The pricing is a sensitive issue and we cannot comment publicly on that.” He says the continued uncertainty about whether the Egyptian government will extend the higher domestic sales prices to more offshore fields has dampened companies’ enthusiasm to commit to expensive deep-water exploration programmes.

“If Egypt can extend higher domestic supply prices and follow through with a clear policy on gas exports, that will provide much more encouragement for oil majors,” says Ciszuk.

Egypt’s surprise edict in 2009 to freeze new gas export deals until at least this year has led to further uncertainty for international oil companies in the country. The new strategy is being driven by a growing consensus over the need to refocus the use of gas to serve domestic needs better, even if this limits export growth. As a result, planned liquefied natural gas (LNG) projects are being delayed or shelved.

Block offers

In October 2009, Egas said it had postponed plans for a second LNG train at Damietta, due to insufficient supplies of new gas reserves. BP and Eni had proposed an additional train with a capacity of about 2 billion cubic metres a year, but the companies have only discovered 50 per cent of the 4 tcf gas needed for the project to proceed. In the interim, oil majors are being invited to compete for further blocks.

The state-run Egyptian General Petroleum Corporation (EGPC) is assessing offers from oil majors for eight offshore exploration blocks in the Gulf of Suez – west Darag offshore, south Darag, northwest Abu Zenima, east Ras Budran offshore, northeast Issran, northeast Morgan, northeast Amal and north Ras el-Ush. Bids were submitted on 1 November.

A source at EGPC says there has been interest in every block and he expects to announce the winners in the next few weeks.

“Egypt was not successful with every block in the last [Egas] round, but we have a lot of the big international firms here for this EGPC round, so there is still strong interest in the offshore sector,” says the Cairo-based source.